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Author: ericp1974 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 16  
Subject: Trade IRA for a new roof? Date: 10/11/2008 12:41 PM
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Need a new roof (it's leaking), and banks are tightening up credit standards. We're in our early 30s. There's enough in our IRA/401k accounts to eliminate all of our high interest credit card debt (20%+) and get the roof done. Once all that is taken care of, we could take the money we were paying for the credit cards and put it back into the IRA/401k accounts. Does this sound like a rational plan?

Yes, I know we need to stop using the credit cards. We haven't used them for anything in over a year, but we're scraping by on minimum balances. I know there will be a penalty for taking money out, but it seems like a short term loss, long term gain, since our cash flow situation will be greatly improved.
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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8 of 16
Subject: Re: Trade IRA for a new roof? Date: 10/12/2008 2:22 AM
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If the leak is localized to one area, maybe it would be better to fix the leak instead of replacing the roof. Then cut up the credit cards. Pay them off. Save for a new roof. Pay for the new roof after you've saved enough.

Whatever you take out of your retirement accounts today has three effects, one, you lose all the potential earnings on that money, and two, you can never "put it back", you can only make new contributions, and three, you will pay income tax on that money as well as an additional tax penalty for early withdrawal. It's just not worth doing.

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Author: ericp1974 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9 of 16
Subject: Re: Trade IRA for a new roof? Date: 10/13/2008 8:19 AM
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The problem is the roof has already been patched twice in other spots. I fear that waiting another season will just compound the problem.

This weekend I discovered something about my credit. I graduated with my bachelors' in August. However, my school failed to report that I was still in class. I cleared that up, but apparently Sallie Mae put 10 of my loans in default while I was still in deferment. That's enough to ruin anyone's credit. So I'm working on that with Sallie Mae and the credit bureaus, since I'm not supposed to pay until February 2009.

But one thing that the few lenders I asked mentioned was that we have 90% utilization of our credit, which they said is 35% of my credit score. I can't kill that unless I tap the IRA. We haven't used the cards in almost a year, except for two small subscriptions that I forgot about and subsequently canceled.

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10 of 16
Subject: Re: Trade IRA for a new roof? Date: 10/13/2008 10:19 AM
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<<The problem is the roof has already been patched twice in other spots. I fear that waiting another season will just compound the problem.
>>


<<But one thing that the few lenders I asked mentioned was that we have 90% utilization of our credit, which they said is 35% of my credit score. I can't kill that unless I tap the IRA. We haven't used the cards in almost a year, except for two small subscriptions that I forgot about and subsequently canceled.
>>


I will explain my bias regarding retirement and investment accounts. It's my bias, and of course there is no reason you need agree with it.


That bias is --- once in, never out. Investments and retirement accounts are for long term wealth building, not patching short term problems. Use investment accounts to fix short term problems and soon you wont have any investments and no prospects for retirement or long term wealth.

If the roof leaks and you can't presently afford to replace it without using investment/retirement funds, then investigate the problem and patch the leak until you can afford to replace the roof. You might get good enough at the task to get several more years of life out of your roof.


If you and your credit card companies think your credit utililization is too high, pay it down out of current income.


Too tough? A little suffering can be good for the soul, in my experience.


Seattle Pioneer

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Author: Jeanwa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11 of 16
Subject: Re: Trade IRA for a new roof? Date: 10/14/2008 12:12 AM
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Patch the roof, our roof leaked on and off for over 5 years. We patched and patched. It really didn't compound the problem.

Jean

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Author: mheusser One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12 of 16
Subject: Re: Trade IRA for a new roof? Date: 11/10/2008 1:43 PM
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*bump* - So what did you do?

The big problem I would see is that by pulling out now, you pull out at the bottom of the market. That's realizing a lot of paper losses.

I expect that in 6 months, the markets will have regained a good bit of health. Not all, but a good bit.

Another way to look at it is this: If you have revolving credit card debt, you are taking on an automatic 20%-ish LOSS every year. So paying off credit card debt makes sense if your after-tax loss on the money is greater than your expect pre-tax gain. (Is it a Roth? Otherwise, you'll pay a penalty on the way out.)

If you have friends who are handy, you might want to consider buying your own shingles/OSB and throwing party. Then you'd be able to pay off credit cards, get a roof, and keep a couple bucks in the IRA.

Again, I'm curious. It's been a month - what did you do?

--heusser

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Author: Jeanwa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13 of 16
Subject: Re: Trade IRA for a new roof? Date: 11/13/2008 7:58 PM
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you replied to me...not to the op.

Here is a link to a post of the orginal poster....

http://boards.fool.com/Message.asp?mid=27088681

jean......didn't realize you were responding to me until I got the email.

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